Central bank printing presses are running at full capacity, and national debt is growing by leaps and bounds. How does the price of gold behave under these conditions? According to the results of the first quarter of this year, 2021, the cost of the yellow precious metal showed the worst quarterly result over the past four years. According to analysts, the main reason for the significant drop in the price of gold in the first quarter was the increase in the yield on 10-year US government bonds, which began to be observed from the end of December 2020.
Since the end of last year, the yield on US government bonds has grown from 0.92% to 1.72% and thus reached the inflation rate in the United States at the end of February this year. This means that the holders of "Treasuries" have not earned anything, taking into account inflation in the country. The situation is even worse with German government bonds, the yield of which is 0.33% with inflation of 1.3%. It turns out that investors are fixing negative returns. In the long term, such negative investments lead to a gradual destruction of welfare.
But in financial markets, a belief in the healing power of central banks still prevails. The strengthening of the US dollar and rising yields on government bonds in some countries are putting pressure on the gold market.
Currently, risky assets are in great demand among investors, and not protective ones, which include gold. For comparison: according to the World Gold Council (WGC), in the first quarter of this year, the outflow of funds from "gold" ETF-funds amounted to 183.6 tons in the amount of $ 10.2 billion. During the same time, investments in Bitcoin-based securities grew by $ 8.4 billion. It's fair to say that this is just a short-term trend. Overall, the fundamentals do not indicate the need to sell gold. At a minimum, you should continue to keep the precious metal in your investment portfolio.
According to some reports, the volume of gold mined at the moment in the world is 200,000 tons, which at current prices is more than 11 trillion. dollars. But this is only 1/5 of the balance of the ECB and the FRS plus the US and Eurozone national debt.
In defense of gold, it is worth saying that this precious metal has a thousand-year history, in contrast to the bitcoin cryptocurrency, which only relatively recently began to gain its popularity among retail and institutional investors around the world.